07 May 2021 Ankit Chadha

Everything You Need to Know About SOX Compliance in 2021

SOX Compliance | TRC Corporate Consulting

In 2002, the US Congress passed the Sarbanes-Oxley (SOX) act to protect the people from erroneous practices conducted by corporations and businesses. This act aims to increase transparency and clarity in the way corporations conduct financial reporting and promote a formalized system of checks and balances in all corporations.

SOX Compliance is more than just a legal requirement. It is a fair business practice that encourages companies to behave ethically and reduce access to internal monetary systems. Aside for this, adapting SOX financial security gives your business the side benefit of protection against data theft or cyber-attack. Essentially, SOX Compliance encompasses several similar practices as most data security checks.

What is SOX Compliance? 

Let’s begin by answering a simple question – what is SOX compliance? This bill was written by Senator Paul Sarbanes and Representative Michael G. Oxley. It was created in response to numerous high-profile corporate scams that came to light. SOX Compliance originated with the goal of protecting investors by enhancing the consistency and accuracy of corporate discoveries. This bill brought forward a set of responsibilities for board members and officers of publicly listed corporations. Moreover, it also put criminal penelties in place in case a business fails to comply with these norms.

Who Needs to Comply With SOX? 

SOX compliance applies to all publicly listed companies. SOX also applies to audit companies and accounting firms that work with companies that fall under SOX.

What are the SOX Compliance Requirements? 

  1. CEOs and CFOs of an organization are accountable for the accurate documentation and submission of the financial archives along with the internal control structure at the time of a Sarbanes-Oxley (SOX) Audit. These officers can face imprisonment and/or financial penalties in case of compliance failures.
  2. Another SOX compliance requirement is that it needs businesses to produce an internal control report the holds management responsible for maintaining a proper internal control structure for their financial data. Any compromise should be reported in due time to ensure transparency.
  1. SOX mandates comprehensive data security policies and clear communication of these policies. Moreover it also requires businesses to reinforce these policies consistently and implement a strong data security plan to safeguard financial data.
  2. Additionally, SOX also requires companies to produce documents establishing they are compliant and making constant efforts to ensure they stay compliant as per SOX compliance requirements.

What are SOX Audits?

SOX requires all applicable companies to take part in audits on a yearly basis. The results of these SOX audits are supposed to be made public to all stakeholders. Corporations bring on board independent auditors to perform the SOX audit. The fundamental purpose of these audits is validation of a company’s financial records and statements. The auditors tallies the present data with that of previous years to decide if everything is streamlined. These auditors can also choose to hold one-on-one interviews with particular employees to ensure everything is aligned with SOX requirements.

How to prepare for Sarbanes-Oxley (SOX) Audit or SOX Audits? 

You need to keep four internal controls in mind while preparing for your Sarbanes-Oxley (SOX) Audit or SOX audit. Lets take a look at them.

  1. Access 

Access refers to electric controls such as login policies & permissions and physical controls like doors, locks and badges. As per SOX compliance requirements, no person should have access to documents and data they don’t necessarily require.

  1. Security 

Security refers your plan of action to prevent data breaches. SOX gives freedom to decide how you wish to implement this.

  1. Data Backup

SOX requires you to maintain compliant backups of your financial data. This backup needs to be maintained off-site.

  1. Change Management

SOX requires you to have defined processes in place to maintain and add new users in your systems.

SOX Checklist 

It’s always a good idea to have a SOX checklist handy while preparing for your SOX audit. Here a few points that you can be a part of your SOX checklist.

  • Make sure you maintain proper SOX compliance status reports. It is always advisable to be regular in maintaining these reports as opposed to having a fire drill on the day of the inspection
  • Be proactive in providing SOX auditors with access to everything they need to do their job efficiently
  • Report security breaches beforehand to maintain transparency and trust.

Benefits of SOX Compliance

So far, we have understood what is SOX compliance and how to be SOX compliant. But why do we need to be SOX compliant? Let’s find out.

  • SOX implements a framework the corporations are required to follow to be more efficient in maintaining their financial data. This helps improve several other aspects of the organization.
  • SOX compliant organizations have stated that SOX helps make their financials much more transparent and foreseeable, making stakeholders happy.
  • SOX prevents organizations from cyberattacks and keeps them safe from data breaches which can be expensive and embarrassing. This is very important because data breaches have long term impacts and companies may never completely recover from the reputational loss.

After looking at the benefits of complying with SOX and the risks associated with non-compliance, you would have understood how critical it is to be mindful in this area. It is always advisable to seek expert help to make sure everything runs smoothly and your business stays compliant. Professionals at TRC Corporate Consulting are trained and equipped with the necessary knowledge to provide expert assistance related to SOX compliance. From SOX audit requirement to compliance metrics, the experts at TRC can help your business with SOX compliance. Get in touch to know more.